SEC 40 Act lawyers and those in the ESG space will want to take note of Commissioner Uyeda’s speech published on Jan 27 (SEC.gov | ESG: Everything Everywhere All at Once) in which he lays out an adviser’s fiduciary duty as a battleground for future discussion about ESG investments. Uyeda says “… an adviser can only pursue an ESG investment strategy if the client expresses a desire to pursue such a strategy after receiving full and fair disclosure regarding the salient features of the strategy, including the strategy’s risk and return profile.” It will be interesting to see if Chair Gensler looks for an opportunity to respond to Uyeda’s remarks. Don’t be surprised if we see remarks by Chair Gensler that address an adviser’s duty more generally and not just in connection with established an ESG investment strategy. Maybe something along the lines of yes, an adviser can only pursue an ESG investment strategy where a client expresses such a desire, but as a general matter all advisers should be at least considering ESG factors as they do other important data points when making an investment. Lots more to come……
All posts by Clifford E. Kirsch, Editor
SEC’s 2022 Investor Advocate Report
SEC regulatory lawyers will want to note the recent filing of the 2022 Investor Advocate Report. The Investor Advocate is an advisory arm of the SEC looking out for the interests of retail investors, but it doesn’t engage in SEC rulemaking. A few things in the Report jump out. First, a statement that suggests the Investor Advocate wants to see more before weighing in on the effectiveness of Regulation Best Interest. Also, the Report includes a table of certain potentially problematic products, practices and trends broken down by regulator: These include performance claims and social media (SEC); Finfuencers and Reassigned Advisory Accounts (NASAA) and Financial Literacy Declines (FINRA). Here is a link to the full report: FY22 OIAD SAR Activities Report (sec.gov)
SEC proposes service provider oversight requirements for investment advisers
On October 26, 2022, the Securities and Exchange Commission (SEC) proposed new Rule 206(4)-11 under the Investment Advisers Act of 1940 (Advisers Act), which would prohibit SEC-registered investment advisers from outsourcing certain services or functions to service providers without meeting minimum requirements. At the same time, the SEC also proposed certain related amendments to Rule 204-2 under the Advisers Act and Form ADV.
Proposed Rule 206(4)-11 (Proposed Rule) would require investment advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions. It would further require advisers to periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider.
Recent SEC Settlement Suggests CCOs Have Target on Their Backs
From Brian Rubin and Adam Pollet in Corporate Compliance Insights:
The SEC’s prosecution of chief compliance officers remains a fraught and controversial topic. A recent SEC enforcement settlement with a CCO and a registered investment adviser could raise even more questions about the role of CCOs and what standards the SEC uses in sanctioning them.
Proposed bipartisan legislation aims to clarify the crypto regulatory landscape
New, sweeping bipartisan legislation proposes to define the contours of regulating digital assets and the crypto industry. Among other things, the bill:
- Gives the CFTC primary jurisdiction over digital assets and exchanges, limiting the SEC’s ability to regulate the industry;
- Calls for federal and state cooperation in monitoring and regulating the various aspects of the industry, including tax and money transmitter issues; and
Includes a number of measures designed to address cybersecurity and ESG concerns.
